RE - to sell or to hold?

[WJK]

What’s up Fellas,

Big shout out to all the RE legends in this thread - you already know who you are!

Just wanted to give an update, bought a new place in New Jersey a few months ago (hence why I been somewhat MIA). Why I love the area, we have our own little city - bars, restaurants, Shopping, Navesink river, etc (Red Bank Area). So much to do. Great schools too!

I gutted the entire house, put 45k into it but I did all the work myself - blood, sweat, and tears! The kid from Queens came a long way lol. I don’t think I would ever do this again BTW. However, I learned a lot and now that this phase of my life is done, we are shopping beach houses in Long Beach Island to buy for investment. I’ll get into that in a moment.

On this property, I took another ARM - 10 year 3.875 no points. I put down $205k. The house was fairly young - built in 98.

NY/NJ RE is stupid expensive especially if you’re in a hot area like this one. I included some pictures. It’s amazing the things you will learn on YouTube. I also called in a lot of favors as well, It def pays to know people.

I put 3 1/4 white oak floors in, new kitchen, 1 new bathroom, 1/2 bathroom, updated fireplace, painted, had a new basement carpet installed, and 24 high hats installed. There’s probably a few other things but those were the big ticket items. This was pretty much where the 45k went. I’m going to live here for 5-7 years and I’m out!

If I wanted to sell today, I can probably get $730. Not to bad for a few months of work.

Anyway, we are in the market for a beach house. However, we are looking to partner up with one of my buddies and each take 1 week during the summer and rent the property out the rest of the summer. Something about the idea of not getting stuck with a non paying tenant really excites me. I like the 1 week rental thing. The area we are looking at is Long Beach Island, NJ. They generally rent every week during summer months between 5k-8k a week and sell for 750-1.4m. We would like to be somewhere in the 850-900 range with around 250-300k down between the two of us.

Good plan. For tax reasons, you don't need to stay in your rehabbed house that long. You can start looking for a new one in about 2 years. Yes, you'd have to do it all again. It's like having a baby. In the end, it's all worth the struggle.

As far as your beach rental goes, the sticking point on that one is the clean-up after each guest leaves. The timing of the cleaning is that part that going to make or break your plan. You can have your gardener come just about anytime during the week. The cleaning staff must be there and get it ready for the next guest. They do have services which do that kind of work but be careful. Your success depends on their diligence and dependability. Many are tied to a good rental agent/property manager. You also need a handyman on call for emergencies. Again, many rental agents have those folks on hand too.

And, here's the biggie. Between your friend and you -- who is going to keep the books and pay the bills? Who is going to go on the mortgage? How are you going to handle the banking? How are you going to divide up the bootie? How much do you need to keep in reserve and sinking funds (money for short-lived items)? Who is going to decide these critical factors?

Good luck!

 

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[ZeroTo100]

Good plan. For tax reasons, you don't need to stay in your rehabbed house that long. You can start looking for a new one in about 2 years. Yes, you'd have to do it all again. It's like having a baby. In the end, it's all worth the struggle.

As far as your beach rental goes, the sticking point on that one is the clean-up after each guest leaves. The timing of the cleaning is that part that going to make or break your plan. You can have your gardener come just about anytime during the week. The cleaning staff must be there and get it ready for the next guest. They do have services which do that kind of work but be careful. Your success depends on their diligence and dependability. Many are tied to a good rental agent/property manager. You also need a handyman on call for emergencies. Again, many rental agents have those folks on hand too.

And, here's the biggie. Between your friend and you -- who is going to keep the books and pay the bills? Who is going to go on the mortgage? How are you going to handle the banking? How are you going to divide up the bootie? How much do you need to keep in reserve and sinking funds (money for short-lived items)? Who is going to decide these critical factors?

Good luck!

I thought you had to hold for 5 years now to avoid the tax man. You make some good points on having a cleaning crew come in and prepare it for the next rental. I don't think it would be too much to pay a crew 200 bucks to clean the house weekly. Maybe it's more than this? Personally, I think they would jump all over that deal.

We were thinking of opening up an LLC and buying the property under the LLC with both of us as partners. Definitly have opened up my eyes on those items. I have to give it some thought...but wether we go partners on something or not, I will be more then likely buying a vacation property rental. I liked LBI because the area was only about an hour from where I am and I know it's a favorable vacation destination.

 

[WJK]

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I thought you had to hold for 5 years now to avoid the tax man. You make some good points on having a cleaning crew come in and prepare it for the next rental. I don't think it would be too much to pay a crew 200 bucks to clean the house weekly. Maybe it's more than this? Personally, I think they would jump all over that deal.

We were thinking of opening up an LLC and buying the property under the LLC with both of us as partners. Definitly have opened up my eyes on those items. I have to give it some thought...but wether we go partners on something or not, I will be more then likely buying a vacation property rental. I liked LBI because the area was only about an hour from where I am and I know it's a favorable vacation destination.

Check w/ your tax man. My understanding is that you must occupy the property as your primary residence 2 years out of 5. Next talk to both your tax man and your attorney. Check on a rent-to-own-contract (an option) for a buyer, with a caveat that they can't execute the option to buy during your full holding time required by the tax code. There are a lot of ways to skin the cat.

The danger in that type of situation is IF they trash your property and move on. How are you going to get your money back? What if they stop paying? What are your eviction laws like in that area? If they do move on during the holding period, then what they paid could possibly be designed as "liquidated damages" in your contract. Ask your attorney. Do your local laws allow that? The key is to properly vet your renter/buyer and have them put up a really hefty security deposit so they have a dog in the fight. All in all, if they fail to complete the purchase, you would take back the property and resell it. And upon completing the sale, your profits, under the permissible level, could be mostly tax-free. In the meantime, you could have a rental with depreciation and expenses (the depreciation is usually taxable when recaptured through the sale of the property).

Start singing that old tried-and-true song -- NEXT! Isn't this a great country! Uncle Sam LOVES real estate investors. Get smart about it!

As far as a vacation rental... There's a lot of management time put into making that kind of situation work. Doors with keypad locks work great. I use them all the time. And some can be reset remotely. Mine has 2 PINs on them. One is for me and my staff. The other is for the guest, and they are reset for each rental period.
I'm not sure about your $200 per week for cleaning. It depends! How big is the house? Who is going to the laundry and supply the cleaning supplies? Can you combine it with the lawn service for a better overall price? What about wintertime maintenance? You'll have to see how it goes. The first time in anything has a long learning curve.

 

[ZeroTo100]

Hey Everyone,

Been away from the forum for a while just trying to focus on the F,H,B - family, health, and business. I’ve learned to structure my life around these three letters and to be honest it really has tremendously impacted my life. It’s changed me!

Anyway, I’m looking for a little help here from some of the RE gurus. I’ve got involved with numerous projects, hustles, businesses...but the truth is I have children now and I really want to focus on building this RE portfolio. I got this far but now I’m ready to really buckle down.

Just wondering what tools and advice on helpful sites you use for finding and listing (rental) properties, screening providers, funding (I have liquidity), location metrics (if exploring new areas), etc. Considering all options in buying local, outside my area, even vacation areas.

Don’t get me wrong...I’m not asking for anyone to do my work for me - just asking if any RE investors are willing to share their most helpful tools/websites they use.

Lastly, how would forming an LLC work in relation to the property(s). Hypothetically, is it possible sell shares of the fund as the portfolio grows? How would that work. Just trying to understand the big picture here.

Thanks

 

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[ZeroTo100]

Thanks brother for the response.

I don’t think I would want to build something publicly traded.

How would you position yourself in your marketing? As an investor or as a company?

Do you use any sites for research on particular areas or research on what rentals are going for in a specific development.

These days, the best deals are found by doing your own marketing. Direct mail, door knocking, advertising, cold calling, etc. If you're going to go after properties listed on public sites (including the MLS), you're going to find that you'll have a lot of competition. Remember, all it takes is for one naive investor to decide to overpay for a property (and there are LOTS of those naive investors out there), and it's no longer a good deal.

So, if you want good deals, be prepared to market for them.



If you pool money from multiple passive investors to buy an asset(s), you've created a security -- that security must be registered with the SEC and will have to follow certain rules and disclosures. There is a high cost and headache to going down this road if the investment isn't significant, but I would recommend talking to a good securities attorney if you want to pursue something like that.

 

[ZeroTo100]

Not publicly traded -- only for people you want to participate. But, even for private funds, if you're going to pool money from passive investors, you'll need to go through the SEC, as pooled passive investments are considered a security.



I've done it both ways, and it really depends on the brand you're trying to portray. We've done everything from, "We're a husband and wife team who are looking to buy another investment property in your area..." with a picture of the family on the front to "XYZ, LLC buys houses, any situation, any condition, blah, blah, blah..."

There's no right or wrong answer, though how you plan to answer the phone and talk to the potential sellers should play into this.



I prefer to have MLS access in whatever states that I'm buying property. This gives me access to the raw data I need, like rental pricing, so I don't have to guess or rely on a website that is generating a automated estimate. If you don't have MLS access, find a great real estate agent in the local market who can help you. Even better, if you're looking for rental prices, talk to a local property management company that specializes in that type of property.

Thanks buddy...

Was listening to a podcast this morning and it just so happened you were on it. Great interview, super helpful and informative.

Here’s a link for anyone interested

Why real estate should be the end goal of every entrepreneur - with J Scott - The Sweaty Startup

J Scott, host of the BiggerPockets Business podcast, bestselling author and successful real estate investor came on the podcast today! It was an

sweatystartup.com